Federal Court: Kraken Must Comply with IRS' “John Doe” Cryptocurrency Summons

Articles/News, Offshore Account Update

Posted on November 17, 2023 |

Kraken, the well-known cryptocurrency exchange, has been ordered by a federal court to disclose customers’ personal information and transaction data to the Internal Revenue Service (IRS). The order comes after Kraken’s prolonged fight to thwart the IRS' “John Doe” summons and after several other cryptocurrency platforms have already been forced (or voluntarily chosen) to comply with similar requests.

As a result, many Kraken customers may soon be facing IRS criminal tax audits. In a petition to the court seeking enforcement of its “John Doe” summons, the IRS wrote that it intends to use Kraken’s customer information to “identify U.S. taxpayers that have transacted in cryptocurrency . . . and who may have failed to report such transactions in compliance with internal revenue laws.” The summons applies specifically to data for customers who executed cryptocurrency transactions with an aggregate value of $20,000 or more between 2016 and 2020.

The IRS, Cryptocurrency & Kraken: Criminal Tax Audits May Be on the Horizon

While the court limited the scope of the IRS' “John Doe” summons in certain respects, it compelled Kraken to produce the primary information that the IRS needs to identify potential targets for criminal tax audits. Pursuant to the court’s order, Kraken must disclose customers’ personally identifying information (including name, address and taxpayer identification number) as well as their transaction histories. The IRS will then be able to cross-reference this information against customers’ tax returns and determine whether they have underreported (and underpaid) their federal income tax liability.

Taxpayers targeted for cryptocurrency-related tax evasion can face substantial penalties. The IRS has prioritized cryptocurrency-related compliance in recent years, and it has shown a willingness to heavily punish (and in some cases prosecute) taxpayers who have paid less than they owe. Ignorance of the law is not an excuse for noncompliance, and while criminal prosecution requires evidence of willfulness, even inadvertent noncompliance can expose cryptocurrency investors to substantial civil penalties.

What Do You Need to Know if You Are a Kraken Customer?

In light of the recent court order compelling Kraken to comply with the IRS' “John Doe” summons, what do Kraken customers need to know? At this stage, those who have concerns about facing IRS scrutiny should make their defense their top priority. They should engage an experienced IRS criminal tax attorney promptly, and they should work with their attorneys to evaluate their options. If the IRS has not yet initiated a criminal tax audit, a corrective filing or voluntary disclosure may still be an option. But, these options can be risky as well—and it is imperative that taxpayers make informed and strategic decisions based on their individual circumstances.

Contact New Jersey IRS Criminal Tax Attorney Kevin E. Thorn

Do you need to know more about the IRS' efforts to target Kraken customers? If so, we encourage you to contact us promptly. To request an appointment with New Jersey IRS criminal tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 201-842-7696 or contact us confidentially online today.

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